Crude, Currency, Pharma and Oilfield Services

Daily Analysis - 10/01/2018

Oil continues strong

crude-oil-stockpiles


Today’s assets are correlated to the oil patch. As the crucial commodity rises and firms in price the correlation, i.e. the knock on effect, to these assets is directly visible. Currencies such as the Ruble that reflects the dependency of the Russian economy on energy and Halliburton, the oil field services giant are both directly impacted by the price of oil. German pharmaceutical manufacturer Morphosys sees rise on it Lenalidomide Lymphoma drug.

Crude Oil stays well above the $60 per barrel price


When we look at the weekly Crude Oil Inventory report chart it becomes readily apparent that inventories have been dropping steadily and regularly since April of 2017. This draw down serves the purposes of the oil producers as their profit per barrel grows. OPEC has placed production restrictions on its member states and non-member states have played along with the scheme to restrict output and bring down the overall inventory levels for this crucial commodity. However, despite the reductions in inventory levels in the US, there is still a surfeit of oil. As of last week there was over 1.224 million bbl held above ground. The long term average inventory hovers close to a million. That’s a 25% excess level of product. Couple this with the fact that as price remains high, say above the $50 level, US shale producers continue to enter the production pipeline, making it less likely that inventories will reduce. SO…we are of the opinion that Oil is an excellent short term buying opportunity but that the long term prospects are determinedly bearish.

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Halliburton


Halliburton, and its cohort of oil field services providers, like Shlumberger, Baker Hughes and Total all benefit from the high price of crude oil. The reasons are quite clear and simple: As high price attracts new production, a great deal of highly specialized and expensive (in all fields outside the Gulf region where it is famously easy and inexpensive to raise a barrel of crude), support needs to be provided. Crude drilling involves high pressure gasses and fluids, often at high temperatures, capture separation and venting of ancillary gasses and fluids etc., all of which are well beyond the means of individual and even corporate drillers and riggers. Enter the Halliburtons of the world…Halliburton UP.

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USDRUB


This is a simple case and easy trading opportunity. Look at the chart of the Russian currency. Look at the chart of the Oil price: QED. An abbreviation of the Latin phrase "quod erat demonstrandum" i.e., “thus it is proved.” As the Ruble has little going for it besides the price of energy products, when energy is dear, the Ruble gets strong. Ruble UP.

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MorphoSys very strongly


This German pharmaceutical firm MorphoSys AG develops and commercializes antibodies for therapeutic applications. The Company develops drugs using its own research and development, as well as in cooperation with pharmaceutical and biotechnology partners. It develops therapeutic antibodies and peptides in the area of inflammatory disease and oncology. Recent clinical data on “Lenalidomide” developed for treatment of Aggressive Lymphoma has met with positive results and the resulting effect on the stock is driving the price impressively higher. MorphoSys UP.

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